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Mallinckrodt's StrataGraft Tissue Phase III Data Positive

Zacks Equity Research

Beleaguered Mallinckrodt plc MNK announced positive top-line results from a late-stage study on experimental StrataGraft regenerative tissue for the treatment of deep partial-thickness thermal burns.

The pivotal, open-label, controlled, randomized, multicenter phase III study in adults evaluated the efficacy and safety of a single application of StrataGraft tissue for the treatment of deep partial-thickness thermal burns.

The study used an intra-patient control, wherein two similar areas of burn injury on the same patient were randomly assigned to either standard of care (autograft) or StrataGraft treatment.

The study met both primary endpoints. Results showed that a significantly smaller area of burn wounds treated with StrataGraft tissue required autografting by three months as compared to treatment with only autograft. Additionally, results showed that the proportion of StrataGraft-treated wounds that achieved durable wound closure at three months exceeded the pre-defined threshold for statistical significance.

Results indicate that StrataGraft upon approval will provide an alternative treatment option to surgeons for deep partial-thickness burns. Moreover, the safety profile of StrataGraft tissue was comparable to that of autograft.

The encouraging results cheered investors. Mallinckrodt intends to submit a Biologics License Application for the same to the FDA in the first half of 2020.

Mallinckrodt’s shares have plunged 84.4% year to date compared with the industry’s decline of 4.6% due to pricing pressure in the generic segment and the rising menace of penalties regarding opioid litigations.


Earlier this month, Mallinckrodt's shares depreciated after a Bloomberg report suggested that the company may file bankruptcy to limit its liabilities related to the pending opioid litigations. Per the report, the company hired restructuring advisers to explore options to avoid the multidistrict litigation scheduled in October. Moreover, its high debt levels will make matters worse if a settlement is reached or a penalty is imposed by the court.

Thereafter, Mallinckrodt inked a definitive agreement to sell its wholly-owned subsidiary, BioVectra Inc., to an affiliate of H.I.G. Capital for approximately $250 million to generate some free cash to deal with liabilities from the ongoing lawsuits.

The company also reached a settlement in principle with Cuyahoga and Summit Counties in Ohio, concerning lawsuits pending in multidistrict opioid litigations. The settlement will fully resolve the Track 1 cases against Mallinckrodt and subsidiaries that are scheduled to go on trial in October.

Earlier, allegations against its lead drug Acthar’s previous owner, Questcor, for conducting illegal sales and marketing activities related to the drug negatively impacted Mallinckrodt’s shares.

It remains to be seen how the company rises from the ashes and returns to the growth trajectory.

Apart from Mallinckrodt, many pharma companies like Endo International ENDP and Teva Pharma TEVA are embroiled in multiple opioid litigations filed by several states, counties and other political subdivisions in the United States regarding the abuse of opioid-based drugs. The industry players are accused of faulty marketing practices, which downplayed addiction risks from these drugs and spurred their consumption instead. Earlier, Johnson & Johnson JNJ received an unfavorable ruling in the court case filed by the state authorities of Oklahoma pertaining to the abuse of its opioid-based drugs.

Mallinckrodt currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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